In 1993, when the Legislature passed a bill giving responsibility for most of the medical care of the state's prison inmates to the University of Texas Medical Branch at Galveston and the Texas Tech Health Sciences Center in Lubbock, it seemed like a good deal for the state and its prisoners. As the dominant participant, UTMB already had a track record in running the state's only prison hospital, and Texas Tech, included as a minority partner with 20 percent of the action, appeared well positioned to handle the medical needs of prison units in west and north Texas.

But the most interesting part of the deal, and one that slid by lawmakers with little comment, wasn't who was handling the medical care; it was who was overseeing the handling of the medical care. Instead of having the medical schools contract directly with the prison system, the legislation called for UTMB and Texas Tech to create a third entity, the Correctional Managed Health Care Advisory Committee. Despite its name, there seems to be nothing advisory about the CMHCAC. Indeed, in some legislative documents it's described as the "board of directors" that supervises the administration of prison health care for the Texas Department of Criminal Justice. The board consists of two representatives each from UTMB and Texas Tech and two representatives from TDCJ, one of whom must be a full-time medical doctor. In short, the contract for health care is run by the vendors themselves, who outnumber their client four to two.

In theory, the Correctional Managed Health Care Advisory Committee is supposed to be a supervisory agency that plans and monitors health care, but the actual day-to-day work of providing care, hiring employees and so forth is done by the two medical schools. Nonetheless, the CMHCAC has its own five-person office in a Huntsville bank building. It's headed by two former TDCJ directors, James Riley and James Lynaugh, neither of whom has extensive medical experience. As executive director, Riley makes $118,400 a year; Lynaugh, the chief financial officer, pulls down $136,302 annually. They supervise one assistant director and two administrative associates. About a million dollars a year from the prison health care contract goes directly to this five-person department, and no one seems to be able to explain just what the state gets in return.

Somebody is always trying to make money from Texas's prisons, usually someone with connections to the prison administration. The most notorious recent case was that of Andy Collins, who as TDCJ director signed a $33 million contract to feed prisoners a soybean meat substitute called VitaPro while receiving $1,000 a day from VitaPro as a consultant.

Other deals have abounded. But few of them have shown the political sophistication that went into managed correctional health care. The peculiar arrangement in which vendors monitor their own contract has not escaped the attention of the state auditor's office, which has been looking at managed medical care in the prison system since last spring and which, after a four-month-long delay, released its audit last week.

The chairman of the TDCJ board, San Antonio lawyer Alan Polunsky, has been fuming about the TDCJ's lack of control of its health care providers for months. One of his concerns is the $668,000 in bonuses that UTMB paid 60 of its prisoner-care physicians last year. Some critics charge that the money should have either gone toward more medical care for prisoners or been a saving for the state. They also wonder exactly what the doctors were being rewarded for, and fear that it may have been for saving UTMB money by denying care to inmates. UTMB medical director Jason Calhoun defends the bonuses as both legal and ethical, and says the physicians were paid the extra money for productivity, not for denying care. Indeed, in UTMB's fiscal 1997 budget, the state's auditors identified $1 million that had been set aside for physician incentive bonuses, part of $1.6 million worth of items that they said "did not involve direct delivery of health care to [TDJC] inmates."

Polunsky objects strenuously to the bonus system. "It sends the wrong messages to the doctors," he claims. "It discourages them from providing meaningful treatment to the inmates."

Polunsky has even stronger words about the structure of the CMHCAC, declaring it "fundamentally wrong. The committee lacks accountability; it lacks accountability to the Legislature and to the TDCJ and ultimately to the taxpayers. It is the classic case of the tail wagging the dog. It makes no sense at all, but is the result of lobbying and politics."

Those politics are complicated, but they work something like this: James Lynaugh is a financial expert who worked closely with Lieutenant Governor Bob Bullock when Bullock was state comptroller. Although Lynaugh had no prison experience, he was installed as director of TDCJ in 1987 when then-governor Bill Clements was pouring money into the budget to build more prisons. Lynaugh fell out of favor with the TDCJ board during Ann Richards's governorship, and resigned in the fall of 1993. The board was divided about who to choose for its next director, and pressed James Riley, a former military-prison warden who had been working in health care for the TDCJ, to serve as interim director. Riley told the board he didn't want the job permanently, but he took it for several months until Andy Collins of VitaPro fame was selected.

One reason Riley might not have wanted the high-pressure job of TDCJ director was that he had other things on his mind, in particular working behind the scenes on a new direction in prison health care. In January 1993, state Comptroller John Sharp had released a massive audit of the prison system called Against the Grain; buried in the back of it was a three-page recommendation to create the managed health care system Texas has today. Included in the recommendation was the creation of not just a board of officials from the medical schools and TDCJ, but also a "managed care administration position" -- which eventually resulted in jobs for Lynaugh and Riley.

When asked how the prison managed care system's unique organizational structure was created, Riley would say only that it was the conclusion of the comptroller and the will of the Legislature. But the specific recommendations were invented by someone, and Riley's name appears in the footnotes of Sharp's report as assistant director for health services. Most close observers believe that Riley and Lynaugh masterminded the creation of the CMHCAC, with the politically connected Lynaugh as the brains of the operation -- which may explain why he makes $18,000 more a year than Riley, the man he reports to.

During the last legislative session, state Representative Todd Staples of Palestine introduced a bill to change the board structure of TDCJ's managed care system. His bill would have replaced the vendor-dominated board with a board of outsiders. Riley and Lynaugh spent a good deal of time in Austin fighting the bill, and it died at the end of the session.

Staples says he became concerned about prison health care when some of his constituents -- who happened to be prison employees -- questioned the costs of transporting inmates from northeast Texas to the UTMB hospital in Galveston, when local hospitals were available. He says he questioned Riley and other officials about how the system was saving money, "and they couldn't tell me. They did bring a lot of data, but it was just not information that got to the heart of the matter."

Defenders of UTMB claim that the hospitals in Staples's district simply want a piece of the action. And there's no question that managed care for inmates is a hot trend. And for good reason: According to the recent state audit, in fiscal year 1996 UTMB and Texas Tech made about $25 million in profit from their contract for correctional health care. About $9 million was set aside in "catastrophic reserve funds"; the other $14 million went to the medical schools. That helps make it clear why, as teaching hospitals find it harder and harder to compete with other hospitals for paying patients, an inmate population with a fixed fee from the state looks more and more attractive.

UTMB has also been bidding on prison health care in other states, though it's hard to see how that has any connection to its mission as a teaching, research and public service medical center funded by the state of Texas. Last spring, UTMB tried to capture a contract for the New York City jails worth $300 million annually, a contract it lost to a New York hospital. But it's continuing to bid on prisoner contracts in other states.

According to James Cook, a former hospital administrator who was still working for UTMB last May, the medical center, when putting its bids together, relied heavily on prison health care employees who were paid by the state.

"Leon Clements [UTMB's managed care administrator] was pushing it," says Cook, "and I know damn well they worked on it on TDCJ time."

Clements said that employees of UTMB Managed Care did work on the contracts, but that their hours were carefully tracked and assigned to proper categories. State auditors, though, found that UTMB's allocation of staff time was based on estimates and not time sheets, and that without "an accurate cost allocation system in place, there is no protection against subsidization of commercial managed care initiatives."

Who is most likely to benefit from UTMB's ambitions in prison health care? Probably a new cadre of highly paid administrators. In the words of the prison inmates, it looks like the officials of the Correctional Managed Health Care Advisory Committee have cut themselves a fat hog.